momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.It brings together, managers from the agricultural world and important people from external perspectives, such as health, development, strategy and defense. Its objective is to promote regulationof agricultural markets by creating new evaluation tools, such as economic models and indicators,and by drawing up proposals for an agricultural and international food policy.

Young Farmers are key in the future CAP:
CEJA position paper on risk management tools

European Council of Young Farmers’ (CEJA) report

May 22, 2017

During the public hearing on the future of the CAP, the various stakeholders concerned expressed their positions and expectations. In a period marked by low prices and faced with the current framework’s inadequacy at avoiding crises and emerging from them in the best possible way, the issue of economic risk management was of particular interest.

Among the recent contributors to this debate is the European Council of Young Farmers (CEJA), which represents European farmers under 35 years of age. They contributed six “position papers”, one of which we have reproduced below1 which is devoted to risk management tools.

Starting from the fact that young farmers are particularly vulnerable not only to sanitary and climatic risks but also to economic risks, they are calling for an integrated approach that aims at both preventing crisis and improving crisis management by giving farmers all the tools necessary for managing risks.

Currently, the list of instruments they have planned appears intentionally long because during this difficult time they will have to use all means available: insurance, mutual funds, precautionary savings, futures markets, financial instruments and countercyclical instruments are all featured.

The CEJA characterizes the current situation as marked by “depressed market prices”, by “overproduction” and “an extended period of low prices”. We can only agree with this diagnosis as stocks are increasing everywhere. However, it should be remembered that economic insurance and futures markets are of no use whatsoever with markets that are permanently depressed and that fail in their ability to provide a price signal close to the market equilibrium price. This type of instrument mainly only allows exploiting the price variations observed over the year.

The countercyclical instruments as cited by the CEJA, are most appropriate during times of crisis in order to cope with long-term price collapse. Momagri also lists them as pivotal package for their proposal for a new CAP, detailed in their white paper2. Lastly, we can only welcome CEJA's call for greater budgetary flexibility in order to create the conditions conducive to the implementation of risk management instruments. Greater flexibility that is already possible under current EU treaties and regulations, as we have demonstrated3.

Momagri Editorial Board

Today European young farmers are competing in an increasingly competitive global agricultural market. European young farmers already established in business and new entrants to the sector are exposed not only to local risks inherently associated with agriculture as a profession - such as climatic and sanitary risks - but also global risks that are wide-reaching and linked to supply and demand in fast-changing global markets.

Risk management tools are instruments which minimize the impact of reduction of farmer incomes caused by external factors beyond the control of the farmers. Market volatility leading to crises throughout the agricultural sector additionally contribute to young farmers’ lack of security. Learning from today’s crisis requires innovative solutions in order to overcome and prevent future crisis. While lessons can be learnt from these situations, crises often threaten to jeopardize young farmers’ place as the next generation of farming.

Currently in the agriculture sector access to education and information services is increasing, as is the awareness of young farmers of the nature of different risks. Volatility within their profession is predominantly attributed to a repetition of extended periods of low prices and significant income variability, thus creating an accumulation of uncertainties.

In these circumstances young farmers are most vulnerable as they are more financially exposed. Consequently, high quality and reliable information on market situations must be provided, in addition to the provision of strong decision-making tools so that young farmers may use risk management tools effectively and self-manage their own risks.

As the future of farming, young farmers benefit from innovative risk management tools that sustain as well as enhance farm viability, rural landscapes and safeguard young farmers against a plethora of risks, from depressed market prices and over production, to uncertainties or constraints related to international agreements. Innovative risk management tools will assist young farmers to develop their businesses more efficiently.

In order to sustain and enhance farm viability for young farmers, CEJA calls for the following risk management measures for the CAP post-2020:

The implementation of tools to anticipate crisis through the Common Market Organisation so that risk prevention is carried out.

At EU level, a comprehensive list of risk management and insurance measures must be implemented by each Member State such as:
- Climatic and sanitary risk,
- Countercyclical tools,
- Insurance schemes,
- Mutual funds,
- Individual precautionary fund,
- Loans from financial institutions including the EIB,
- Improving the system of futures market.

We encourage the European Commission to reinforce the Income Stabilisation Tool (IST). The income threshold for compensation must be attractive to farmers, especially young farmers, to guarantee high initial adoption of the measure. The IST must initially be a voluntary measure at farmer level with the view to be made a mandatory measure in the future CAP.

Access to appropriate financial instruments necessary to anticipate and combat crises in the agricultural sector.

The introduction of annual budget flexibility into the EU financial framework in order to facilitate efficient implementation of risk management tools.